What kills a start-up? Part 2

“Ego is the invisible line item on every company’s profit and loss statement.”[1]

When a start-up reaches Series B or C funding, the growth usually becomes a curve with diminishing returns. This decline happens when a founder/CEO falls prey to the ‘ego trap’, putting their own priorities before the needs of their start-up. It’s actually so bad that fifty-three percent of businesspeople estimate ego costs their company 6-15% of annual revenue (and 21% say this cost ranges from 16-20%), and more than one-third of all failed business decisions are, you guessed it, driven by ego.[2]

Ego: a person’s sense of self-esteem or self-importance

Everyone has an ego. It’s what gives us self-confidence, optimism, and drive. Our egos are inherently positive since confidence and ambition, in balanced amounts, are necessary. It drives away apathy, fear, and insecurities, helping us make decisions and helping us keep an optimistic attitude (which is a powerful predictor of success!).

But then there are the over-inflated egos. The ones that invade every team conversation, boardroom debate, marketing plan, client interaction, contract negotiation, employment interview and performance review. These are the egos we associate with words like “arrogant”, “self-centred”, “closed-minded”, “defensive”, and “conceited”. And there’s no question about it, these egos get in the way, and are a major cause of bad decision-making.

Where do big egos and bad decisions come from?

To put it simply: the ego grows from success and the illusion that you alone were responsible for it.

But since we are focusing on start-ups, we’ll be more specific.

Looking at LinkedIn, it’s clear that entrepreneurship is in style. “Crypto investor: founder”, “Founder, Company X”, “Co-founder X”, “Serial founder”, etc. is becoming overwhelmingly common. Everyone wants to be a founder, and unfortunately, many want it simply for the social capital or assumed perks (magazine covers, keynote speeches, VIP lines, etc.) that comes with it.

Once people are in the spotlight — and the more publicly visible and celebrated they are — the greater the tendency to forget the other factors involved in success. And once they attribute all of their success to their personal talents, their formally healthy ego relaxes and “big ego” takes over. Ego encourages the belief that anything they do in the future will be just as successful, or even more so.

This, together with an emphasis on social capital and material gains, is what leads to ego-driven decision-making (the “ego trap”).

Solutions

Mark DeSantis, CEO of Roadbotics, emphasizes that for the start-up to succeed, entrepreneurs need to remove their social capital-driven desires from decisions they make on behalf of their start-up, “The moment [a founder] takes a dollar of investor money, it is no longer their company. It is an institution s/he created and asked other people to be a part of. A founder’s accomplishment is the architecting of the institution, which is now making other people’s lives better.”[3]

Founders need to able to let go and trust partners to help advance their start-up. Because once an entrepreneur loses sight of their “institution’s” goal “the start-up becomes a founder-centric company, where the founder’s ego becomes an emotional factor in all decision making, wrapped up in the status of being at the center of the company”.

When we have a big ego, we are overconfident and arrogant. When we have too little, we lack confidence and self-esteem. As with all things, balance is key.

Humility is what counters excessive egos and channels our ambitions into the success of “we,” rather than the selfish and short-lived agenda of “me.” Without losing confidence in who we are or lessening the importance of what we’ve achieved, humility creates a desire to reach the next level of performance. It doesn’t lose sight of “me,” but it prevents our personal needs and agendas from interfering with open dialogue and debate.

If humility is what gives us an open mind, curiosity is what drives us forward. What makes us test what we think, feel, and believe to be true. Making us lead with questions rather than answers, reminding us that we don’t know everything.

Veracity — the habitual pursuit of the truth — is the third principle of ego management. It’s not that people don’t want the truth; after all, we all say we do. But we often don’t want all of it. We don’t want the part that’s hard to hear or doesn’t support our agenda, but sometimes that part is the most important to hear.

If openness and progress are the outcomes of humility, and innovation is the aim of curiosity, then veracity is the light that exposes the truths hidden in the shadows of our habits and comfort zones. So there you have it, the biggest start-up-killer of them all, and how to fight it. Keep yourself humble, curious, veracious, and put the company first. Even if it means less time in the spotlight.

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This concludes our series on What Kills a Start-up. We hope all you current, and future, founders out there enjoyed it, learned something, and go forth with glorious long living startups.

If you want to know more about Nova, and how we can help you save both time and money, just click here. And if you are looking for more knowledge on what attracts and engages the rising stars of tomorrow, you will find our other articles, blog posts, guides, and webinars here.